SPECIALISED funds buying distressed businesses at a discount are likely to start emerging in SA in the next year or two, following the example of other countries, says attorneys Werksmans director Eric Levenstein.
Many of these businesses can be turned around and sold at a profit.
Business rescue was introduced in SA five years ago to replace judicial management and facilitate rehabilitation of companies with reasonable prospects of being saved as an alternative to liquidation.
Recent high-profile examples of business-rescue successes include Pearl Valley Golf Estate, gold miner SouthGold and the Moyo restaurant chain.
Levenstein said at a client seminar on business rescue and restructuring last week that lessons learned since business rescue was introduced would justify amendments to the legislation. These included the need for pre-assessment by a business-rescue practitioner, establishing a formal dispute-resolution methodology and providing training for practitioners.
Ivan Uttley, managing partner of Spark! Workouts, Turnarounds and Rescues, said the fundamental causes of most business collapses, irrespective of size, were problems in delegation and team building, poor leadership, lack of structure and poor data.
Although banks tended to focus on debt restructuring and refinancing, in business rescue it was more important to address underlying issues to stabilise a business, Uttley said.
Austerity had to be introduced in almost all distressed businesses. Austerity was a culture, not merely a short-term focus on cost savings.
Every cost had to be evaluated as if a customer would be prepared to accept it on an invoice. A customer would probably not be happy to pay for a chairman’s golf club membership or a human resources director’s business-class ticket to attend a seminar, Uttley said.
Next priority was to make the business self-funding. One solution was to move to a four-day working week, with a proportionate cut in salaries to ensure everyone shared the pain without retrenchments and maintained capacity to grow again later.
Although many businesses wanted to “grow their way out of trouble” by increasing revenue and market share, this was difficult to do, had an uncertain outcome, and took time. It was far quicker and more effective to cut unnecessary expenses and eliminate noncore activities, Uttley said.
Levenstein and Uttley said one of the most important ingredients for success in business rescue was the co-operation of creditors rather than them to pursuing their own narrow self-interests to the detriment of everyone in the process.
Piers Marsden, founding partner of Matuson & Associates, the lead business-rescue practitioner at Evraz Highveld Steel, said one of the most challenging aspects had been keeping the business operating when suppliers were reluctant to keep extending terms.
At Evraz Highveld, committees were formed to give up to date information to employees and communicate with creditors.
As the sale process for Evraz Highveld fell through and market conditions worsened rapidly, the steel business had to suspend operations.
The practitioners had been seeking alternative solutions for parts of the business. These included an agreement to source high-quality steel from ArcelorMittal SA for conversion at the Evraz Highveld plant into rail-industry products, saving 800 jobs. Other opportunities were being pursued.